2023 marked a milestone for SpaceX's revolutionary Starlink satellite broadband internet service. For the first time ever, SpaceX made more money as an internet service provider ($4.2 billion in 2023 revenue) than it did as a space company launching rockets to orbit ($3.5 billion).
For my money, this was the single biggest reveal found in Payload Research's 2023 analysis of SpaceX's probable sales and earnings, released earlier this year. But did you know that Payload has already followed up on that report with a new report -- predicting SpaceX's revenue for 2024 as well?
It's true. And according to Payload, 2024 will once again be an even bigger year for Starlink than it will be for SpaceX's core rocket launch business, with Starlink's revenue outgrowing SpaceX's Launch division year over year 62% versus 57%.
Image source: Getty Images.
Starlink in 2024
As Payload reports, SpaceX Starlink ended 2023 with 2.3 million paying subscribers around the globe -- the majority being U.S. subscribers. As Starlink continues to expand its business, though, international customers are going to be a bigger and bigger part of the business.
And that's not necessarily great news for SpaceX.
Consider: In 2023, Starlink's 2.3 million users generated total sales (both sales of hardware to use the service, and the internet service itself) of $4.2 billion -- about $1,826 in average revenue per user (ARPU). In 2024, Payload estimates that Starlink will grow its user base by 65%, to 3.8 million users. But the revenue generated by those users, about $6.8 billion, works out to an ARPU of only $1,789.
Don't get me wrong. That's still quite a lot of money. To put it in context, Comcast's terrestrial broadband business had an ARPU of only about $789 last year, according to data from S&P Global Market Intelligence. AT&T is eking out its existence on even less broadband revenue -- about $686 per user. So SpaceX is squeezing a lot of money out of its subscribers. But this still means that SpaceX's ARPU will probably decline this year by about 2% per subscriber.
Why is that?
The problem with international subscribers
Starlink's U.S. subscribership nearly doubled last year -- up 90% -- while international subscribership literally tripled -- up 200%. As Payload explains, growth in both segments will probably slow in 2024 as SpaceX begins to max out its total addressable market for high-priced internet service in places with limited access to cheaper, terrestrial broadband. U.S. subscribership is expected to grow 45% this year, while international subscribers will roughly double -- up 95%.
And by the end of 2024, Starlink subscribers should split roughly 50-50 between U.S. and non-U.S. -- about 1.9 million each.
Now here's why this is a problem:
International customers don't pay as much for Starlink service as do U.S. customers -- and so they contribute less ARPU despite consuming the same Starlink service as U.S. customers do. Of particular note, Payload points out that ordinary Starlink subscribers in France now pay just $45 per month for the service.
That's less than half of the $109 that SpaceX charged in France when it started up service in 2021. It's barely one-third of the $120 that most U.S. Starlink subscribers still pay today. (Note that Starlink comes in many sizes, each with its own price. These are the prices for ordinary home users, as opposed to, for example, mobile users, maritime users, airline users, and so on.)
What this means for investors
At present, this isn't a huge problem for Starlink. The company is still growing, after all, even if it's growing both its user base and its ARPU a bit less quickly than a year ago -- and really, a 2% annual decline in ARPU isn't much to complain about.
But what if ARPU declines 5 times faster?
Because ARPU declines will continue. Consider that, over time, Starlink users who bought new equipment and then began subscribing (contributing both hardware and service revenue) will evolve into Starlink users who already own the equipment. These users will pay only for service (removing hardware revenue from the equation). And the difference between service-only ARPU and hardware-plus-service ARPU is a lot bigger than just 2%. Payload actually estimates that service-only ARPU will decline by about 10% in 2024, from $1,260 to only $1,140, as more and more of Starlink's subscriber base comes from international customers.
If you (like me) are considering investing in SpaceX's long-promised Starlink IPO, this is a trend you'll want to keep an eye on.
